Costco: An Inside Look

I received this heartfelt and disturbing note from an obviously loyal but concerned Costco employee. To give you a bit of context, in The No Asshole Rule, I talk about how placing an over-emphasis on status differences among employees at different ranks is one of the root causes of asshole poisioning in organizations (see this post on how giving power turns people into jerks), and I talk about Costco CEO James Sinegal, founder and CEO of Costco who does things to reduce status differences between himself and other employees by doing things like taking a far smaller salary than most CEOs of big companies ($350,000.00 in 2003, which is only 10 times more than a top hourly employee and twice as much a store manager), how he visits hundreds of stores a year, and despite lots of negative feedback from stock analysts that he is "wasting money," Costco provides far better pay and benefits than other big box stores.  Costco long-term financial performance has been impressive, and treating people well has some clear financial benefits (e.g., Costco shrinkage rate -- lost and stolen inventory -- is about 1/10th the industry average, a sign that employees are stealing a lot less and also preventing customers from stealing). 

And this does seem to translate into how they treat customers. I've always found Costco employees to be remarkably helpful, for example, more helpful and emotionally engaged with customers than the employees at Draegers, my local high-end grocery store that sells many items at double the cost you can get them at Costco.

Nonetheless, despite these impressive efforts to treat people well and reduce status differences, maintaining an no asshole rule isn't easy in organizations that have even the best of intentions, especially when they face extreme profit and performance pressure.  See the email I got below from a Costco employee who claims that asshole poisioning is spreading in the company, and one of the main causes is that known assholes keep getting promoting to managerial positions.

I would be curious to hear any reactions to this email. I wonder of this is similar to the experience of other Costco employees. What about those of you who are customers: Are you seeing any signs that the place is turning nastier?  And, finally, I would love to hear from Costco senior management, as I understand that this is just one employee's view, and do admire what you've accomplished, especially given what happens at other big box stores.

Here is the note:

Mr. Sutton,

I just finished your book, The No Asshole Rule, and it's brilliant!  My friends and I have had many discussions until late into the night about the very issues that you discuss.  Thank you for writing this book!  I have to admit that pages 76-78 initially made me cringe a bit, since I have been a Costco employee for over five years now.  I'd like to explain further and I hope you'll indulge me.

First allow me to concede to the positive.  We are paid very well at Costco and receive excellent benefits.  We have a lot of great members and I have become friends with some of my clients!  I also admire Jim Sinegal's vision of the company and the limitations he sets on his own salary is a wonderful example to set as a leader.  Unfortunately, I believe that Mr. Sinegal has become too far removed from the "store level" to see what’s really happening on a daily basis.  Yes, he has visited my location at least 8 times in recent years, but each time has been a quick "walk through" with almost no interaction. 

The culture that I and my colleagues have experienced is one of micro-management by intimidation.  I have worked with a couple of general managers and dozens of area managers and I have found that with regard to hourly employees’ behavior, they unanimously assume negative intent.  Simply implementing #13 on your list of things you believe would alone make a marked difference in this environment.  When instructions are given about completing a task, these instructions are always coupled with a criticism.  Employees are often told to be team players but management doesn't exhibit a team attitude themselves.  I have endless examples of this but I don't want to lose you now, if I haven't already.  I know you must get endless emails.

So how might any of this affect the bottom line?  I have noticed a trend over the years that I've been with Costco of employees demoting themselves.  I have personally known of 6 individuals who have taken up to a 15,000/year pay cut to "step down."  In some cases the other management at the store described this self demotion as a "personal failure on the part of the employee."  I have not experienced these individuals to be failures and some of them are the most intelligent and productive workers that I have had the pleasure of working with, and they are also Nice!  On the flip side of this, managers that have had numerous complaints made about their behavior are continuing to get promoted.  One such individual had no less than 10 people about his unprofessional, condescending, and almost downright abusive behavior.  Upper management's response was that they would speak to him, but that he will continue on in his current role.

Finally, it's important to note that I'm not basing this on only my experience or on the experiences at one location.  I've networked with Costco employees in Seattle, Florida and Indiana to name a few and I have found similar environments and similar stories.  So why am I still here?  Why are some of my colleagues still here?  The pay and the benefits no doubt play a part, but so has the idea that we can change things.  I must admit to you Bob, for most of us, that idea is wearing thin.

Comments

[Donovan-20year costco hourly emp.]

The veteran employees are topped out earning 20 an hr & a bonus of 3,500 every 6 months. We or I have stepped down only because we make enough $ without stress of mgmnt. We also have lost our drive to move up.We love our job serving.Just like a good quarterback,a mgr has to have some cockyness

[linda]

i started at costco in 2005. i was given full time within 10 days. i had to go back to part time within 2 months.after that i was dirt in there. there is no respect,no positive ,its all negative. is it costco? i m not sure. but i know that im an excellent worker and team player and in 40 years of work i have never been treated like i have at costco. no matter what i do it is never enough or its done wrong. and i had 11 years of experience at another warehouse club. some employees get treated great, but if you care and try to do the right thing,you get used and abused constantly. i feel that it starts with the upper managment. tomorrow will be my last day at costco. i just cannot put up with all the negative anymore. after 3 weeks of every job i ve ever had the employer knew what a great and hardworking person they had in me. its been over 3 years and 11 years of experience in this environment and according to the management in costco i still can t do anything right. therefore i m done trying and they are losing an exceptional worker. there are no regrets with this decision.

[Uk Costco Duty Manager]

I'm a duty manager in the UK, I could go on and on about the hypocrisy that is Costco. I have a Bachelors and a Masters degree and really bought in to Jim's vision. I'm about to say enough is enough and go back to waged where the conditions are good. Couple of examples. In Costco's principles we are meant to be fair with our vendors. Some vendors will take back anything, some will only take back faulty goods eg Sony, so if someone brings back a PSP or PS3 just because they've changed their mind, we damage it so Sony will take it back. Keter sheds? They will issue a destroy for credit i.e. we say its faulty, they give us credit and we destroy it for them, or more likely sell it to a salvage member, 2 bites of the cherry! Duty managers are bullied by senior managers and are expected to take up any slack made by looking after waged empoyees. I've never had a single visit we have not known about for weeks and have prepared for including falsifying documents, (US audit, are you listening), except I know who will get the blame...

Oh, and a lot of the stuff we sell is cheap China imports produced under slave conditions.

I could give a lot more detailed examples but until I get a new job, I need this one, alternatively, Jim, I bought into your vision, get Murphy, Papas and Morrow et al. to earn their crust and see what is really going on.

[Rachel]

For those who are claiming that the original writer's opinion is based upon one location, read over his letter again. They specifically say that it is not, and that they have heard similar experiences from Costco employees in various other locations. Doesn't mean all locations are like that of course, but it does mean that this is not an isolated, single incident.

[Costco Employee]

To other employees from another happy employee who thinks Costco is great to work for.

I definitely see what the oringinal blogger was talking about. How many managers/sups have we had step down in the recent past. How many managers or sups are condescending or out of line in behavior? How many in charge abuse the rules more than the hourly's they bring it down on? I am sure it is different in each building, but it happens in ours. Most employees, including myself say nothing.

Although I totally agree with what the second employee said in response to the original letter, they have to be taking a blind eye not to notice. If the dog and pony show the entire week including the day of before Jim Sinegal arrives at a building (pressure washing, painting the building, mulching, electricians, overtime hours, double staff,....etc) is not enough to make them think that its all an act then they are mentally incapacitated.

Although Mr. Sinegal still visits each building once or more a year it is very premeditated. The three or more "pre-walks" to a building before he even arrives is another indication that could be used to dispute his dis-attachment with the buildings true operations. He might very well think,.....or want to believe, that this is how it always is and looks. In reality it makes the company work, somewhat dysfunctional, but we get it together once a year for his visit. Unannounced visits would be better.

I take offense in what the second employee says as far as the first employee being the minority in this thinking...it hope this is not the case. I believe the majority feel this way they just never voice it to management because management will not rectify employee problems let alone theirs.. The first is not saying Costco is bad at all, in fact not once,...they are commenting on the fact that there are a few people in charge that never get served a hot plate of FU from the higher ups because they also turn a blind eye. This does not go unnoticed and also trickles down to employees who abuse this blind eye policy as well. WE HAVE HABITUAL OFFENDERS.

It may all stem from this, Costco's management model.

Promote on seniority rather than superiority.

[Bob Sutton]

Bob,

Thanks for telling the other side of the story.

[Bob Sagamano]

As another Costco employee I can tell your the letter writer probably works in a warehouse with a manager that does not reflect the vast majority of Costco employees.

I have worked in several different retail environments and can tell you without hesitation that Costco has the best pay, benefits, and work atmosphere of them all.

Costco like the rest of America has some employees that you couldn't satisfy if you paid them in gold twice a week. Two things show me that things are pretty good at Costco - the employees stay (avg. tenure at most meetings I attend is over 10 years. The second thing is how you see the same people every time you shop at Costco. Most retailers turn half there staffs every year. I have worked with the same group of co-workers for years.

Your letter writer is in the minority in his feeling about Costco. Some people's problems start with themselves.

[Wally Bock]

It's dangerous to take any single communication as representative of what's happening at any company as big as Costco. It might indicate a problem for the company as a whole, but it might also be the experience of one person in one place in a large company.

I blogged about my experience as a Costco customer last December. In that post I told about how a supervisor acted, how her team responded and how praise was shared in one specific instance.
http://blog.threestarleadership.com/2007/12/21/why-i-shop-at-costco.aspx

We shop often at two of their stores, one near us and one near our daughter's home in a nearby city. The experience at both of those stores is uniformly excellent. Managers do not appear to be turning over or stepping down. Things seem stable on that front.

Store managers have a huge effect on both morale and productivity in individual retail stores of any kind. Perhaps the writer is in a store with a bad manager.

Now to Mr. Sinegal. I was in one of the stores we shop at when he visited. I was nothing like a "quick walk-through." In fact, I commented to my wife that it was not like the typical HQ "parachute and run" visit that CEOs often do.

What this give us, I think, is two different data points. To figure out if there's a "power corrupts" situation at Costco, we need a bit more.

[Michael Sporer]

Bob;

I too am impressed by Jim Sinegal and have done a blog post about him. Jim is an old-school marketer, and although he treats his employees well, maybe he is losing site of the importance of building an overarching culture of mutual respect. After all, culture trumps process and even pay sometimes! Inflated egos gone unchecked can quickly make for an asshole-infested environment.

Mike